Last month, in US Bank National Association v Ibanez, the Massachusetts Supreme Court voided foreclosure judgments obtained by U.S. Bank and Wells Fargo (the Banks) because the Banks failed to show that they were holders of the mortgages at the time of the foreclosure. Ibanez created a stir in securitized-mortgage industry circles. Although some commentators have correctly suggested it has applicability only to Massachusetts, the decision reflects a broader state court trend of requiring that foreclosing mortgagees prove ownership of notes and mortgages sought to be foreclosed.
The Banks in Ibanez were not the original mortgagees, but were foreclosing as trustees for structured pools of mortgage-backed securities held in trust. Title to each mortgage had passed from the originator, through several intermediaries into the trusts, which actually held title at the time of the foreclosure. As hundreds of thousands of mortgages have been bundled into securities, proof of ownership of each chain in the link is sometimes not recorded. And the mortgages in Ibanez had not been assigned to the Banks at the time of entry of the foreclosure judgments. Rather, they produced assignments executed after the foreclosure sales. Therefore, the Massachusetts Court held that they “failed to make the required showing that they were the holders of the mortgages at the time of foreclosure.” As a result, foreclosure sale to the Banks was not effective to pass clear title. The Ibanez court was not the first to so rule. Florida Courts, among the busiest, uniformly require proof of ownership of a mortgage before entry of foreclosure judgment.